National Australia Bank
, JPMorgan and Bank of America-Merrill Lynch still think the RBA has more easing to do in this cycle.

Macquarie’s economics team, led by Richard Gibbs, was emboldened by the better-than-expected performance of the economy during the fourth quarter, especially evidence of a rebound in domestic housing construction.

AFR
AFR

“Assuming a relatively moderate amount of fiscal tightening in the 2014 federal budget and some further upward drift in the unemployment rate, we view the scope for two further cuts to official interest rates as having narrowed in the past month," the bank said. Macquarie has 2.25 per cent as its bottom of the cycle level for interest rates, with a final cut factored in for the third quarter of this year.

The bank thinks the economy will need more stimulus because businesses are struggling with challenging trading conditions and an anticipated fall in the value of the Australian dollar, which has yet to happen.

The Australian dollar was fetching US90.84¢ on Tuesday.

“In addition, the results of the December quarter capex survey were also uninspiring, particularly for [2014-15] when the fall in mining investment is expected to be more pronounced, while investment intentions in the non-resource sectors will likely be insufficient to meaningfully drive GDP growth over the next 18 months," the report said.

Last week, exceptionally strong job creation reported for February added to the case for no more rate cuts.

Westpac rescinded its forecast for more easing after chief economist
Bill Evans
took the view that while the economy would benefit from more stimulus, the RBA had conveyed a high benchmark for further rate cuts and those were unlikely to be met.

National Australia Bank chief economist Alan Oster said he was standing by his prediction the RBA had more to do.

“We are still happy where we are.

“We are still quite concerned about what’s happening to unemployment, because unemployment is what is going to really matter here.

That job ads had risen 5 per cent was merely “statistical noise", he said.

“What worried us is our business conditions index basically retraced all the improvement we had from the election."

The Reserve Bank and the Treasury are tipping the unemployment rate to rise to 6.25 per cent this year as the economy adjusts to lower levels of mining investment.